Market was looking for trigger for short-covering, which came from reassuring words from Bernanke. I don’t think anybody believes recovery is going to be that quick, not even Ben Bernanke. He knew he had to say it, so that markets can take a breather before they resume the selling again.

The week belonged to Fed and it’s historic decision to go zero.
So how did market react to the news?

Treasuries

For quite some time all short-term treasuries were trading at zero yield due to sudden spike in risk aversion resulting in treasury bubble. If anything, this Fed decision has just salvaged the treasury bubble making sure that no one loses money when risk appetite returns everybody starts selling treasuries.

The current treasury yields are clearly record low means treasury prices are record high – 30 yr note selling as low as 2.6% yield.

TED Spreads

But real effect of Fed’s decision could be seen in TED spreads.
After long long time TED spread, the difference between rate at which banks lend each other i.e LIBOR rate and corresponding treasuries yield, dropped to 150 basis point. It is still above the normalcy level of 50 basis points, but way below all time high of 450 basis points.

TED Spread

Some good signs of subsiding panic and sanity returning to markets.
But we are far from any kind of recovery.

About

08 November 2008
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It’s 08Nov08 today. The financial crisis, which started with housing meltdown in US, has unfolded itself massively on global scale. This diary is an attempt to present the events as and when they happen from now onwards. I will try to keep it as factual as possible and looking to update it at least once in a week.
I am not an economist, so hoping to get layman’s common sense perspective on events of the crisis.
Crisis Diary as it unfolds …